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The Situation of College Debt – Part II

Business Week recently published an excellent collection of articles (by Jessica Silver-Greenberg) examining the increasing use of credit cards by college students. The series sheds light on some of the situational sources of the escalating debt loads of college graduates, one component of a wider debt and and bankruptcy epidemic. The Situationist is offering a series of posts excerpting portions of the Business Week collection. To view the first post in this series, containing numerous related links and the Youtube version of the documentary “Maxed Out,” click here.

It all started as a way to make some quick cash. In 2002, at the beginning of his freshman year at the University of Pittsburgh, Ryan Rhoades needed some extra spending money. So when his friend told him about an Internet ad offering Pitt students a way to make some cash in a couple of hours, he didn’t hesitate. Rhoades rounded up some of his buddies and headed over to the designated classroom at the student union.

What he saw in that room offers a view of how creative credit-card companies have become in marketing their services to college students.

An enthusiastic man who identified himself as a representative of Citibank (C) welcomed them and said they had the opportunity to make some money by signing up their fellow students for credit cards. The bounty for each completed application would be $5 to $10, depending on the kind of card. In retrospect, Rhoades feels like he and his fellow students were being recruited to become credit-card pushers. “That’s exactly what it was,” he says.

* * *

Rhoades took the job and signed up roughly 30 students for cards. He regrets any trouble he caused other students from his actions. Still, his actions may have been most damaging to himself. He ended up with $13,000 worth of debt that he is now struggling to repay. “I hadn’t learned anything about credit cards in high school, and I didn’t know anything about them at the time,” says Rhoades. “I was duped.”

Politicians and college administrators are growing increasingly concerned about the damage that credit-card debt is causing students, and they’re trying to crack down on some of the card companies’ practices. They’re limiting marketing on some campuses and trying to restrict the size of credit lines extended to students. . . .

As the restrictions grow, however, so too do the creative tactics marketers use to circumvent these efforts. At Columbia University in New York City, the school banned credit-card solicitations on campus. But a spokesman says the prohibition may not be that effective because the card companies set up “right outside the gates” to the school grounds. At the University of Michigan and nine other schools, JPMorgan Chase (JPM) contracted with New York-based BicyTaxi to offer students free bike-taxi rides around town. Once inside the vehicles, students are greeted with a piped-in recording promoting Chase’s student credit-card program, Chase+1.

* * *

A spokesperson for Citibank says the company has voluntarily pulled back from marketing on college campuses. . . . “Citi does not conduct direct sales marketing on college campuses,” she wrote in an e-mail. Citibank also says that it has strict guidelines for third-party vendors and that it would never condone violations of school policies.

That doesn’t mean that Citibank doesn’t market to college kids. The company has a specially designated card for students. And it actively markets its services near college campuses. Edward Solomon is chief executive of Campus Dimensions, which contracts with banks to market credit cards to college students. He says his company plans to visit 1,000 schools this fall to promote cards for Citibank and U.S. Bank (USB). In both cases, his company will work to steer clear of school grounds but stay close enough to attract students. “It’s mostly about positioning yourself in a high traffic area,” he says.

* * *

Back in 2002, when Rhoades entered Pitt’s student center during his freshman year, the first thing he noticed was the abundance of giveaways handed out with the credit cards. Among other things, there were about 20 boxes of T-shirts with “college” emblazoned in capital letters on the front, and a Citibank logo printed quietly under the collar. . . .

Roughly 25 students were milling around the student center, discussing what their mysterious sales task would be, when the man who identified himself as a Citibank rep entered. “He told us that this was easy money to make and that all we had to do was get students to fill out applications for Citibank credit cards,” recalls Rhoades.

After arming the students with a bundle of T-shirts and credit-card applications, the Citibank representative, according to Rhoades, told the group how to assuage any concerns a student might have. “He told us phrases to tell students if they were skeptical about filling out an application,” says Rhoades. “He told us to say things like, ‘Even if you apply, you can always cut up the card,’ and ‘It’s easy to pay off your balance once you graduate and get a great job.'”

* * *

Rhoades had no time to teach his fellow students about the pros and cons of credit. In fact, he wouldn’t have known what to say if they had asked. All he wanted to do was sign up students. Without prompting from the Citibank representative, he went into one of the dorms, started on the third floor, and solicited on every floor until he reached the 20th. He was pretty successful, signing up roughly 29 students in a single morning. “Most of the students just wanted the T-shirt, and so I told them to fill out the application anyway,” remembers Rhoades. “I just told them to fill it out and never use the card again.”

* * *

At the end of the morning, exhausted from traipsing around campus, Rhoades surveyed his progress. He was just one application short of getting a cash bonus so he decided to fill one out himself. After marketing the cards all morning, he had begun to buy his own sales pitch and since there was no commitment, he quickly filled it out.

It took just seconds. But now, five years later, he’s struggling with the $13,000 of debt that he accrued across several different credit cards after using them to pay for dinners, movies, and car repairs. “They should put warnings on credit cards like they do on cigarettes,” he says, “to make sure people know how dangerous the cards are.”

* * *

To read the article in its entirety, click here. To listen to an excellent NPR Connection show, “The Plastic Trap,” discussing “research show[ing] that the banks controlling those cards are becoming even more aggressive at charging late fees and other penalties you never knew you’d agreed to,” click here. To view a Today Show interview of Chris and Luke, who obtained corporate sponsorship from First USA to pay for their college education, click on the video below. Chris and Luke, in addition to wearing the corporate clothing agreed, to help get the word out to their cohorts to promote financial responsibility.